5 top Wall Street investors weigh in on the best ways to invest $10,000 now

Successful investors take risks. The trick is to take smart ones, in a diversified portfolio.

Here’s how.

First, make sure you’re covered on the financial basics. Then start scouting out powerful places to invest any excess cash that’s making you next to nothing in a savings account. With the holidays and perhaps a raise or bonus on the horizon, it’s a good time to make that money work for you and your retirement.

To help, we asked five leading investors to share their best ideas on where to invest $10,000 right now. (It makes sense for smaller sums, too.)

So is it too late to get into emerging markets now? Is China still promising or just too messy? We’ll let the panel answer, and share its new ideas, ranging from opportunities in floating-rate bank loans to consumer-related stocks in China.

Barry Ritholtz, Chairman and chief investment officer, Ritholtz Wealth Management

Stick with ‘ugly ducklings’

Three months ago, we looked at where to invest $10,000. My suggestion, assuming your portfolio was already well diversified in low-cost global indices, was to look at inexpensive, underperforming asset classes that were “ripe for a reversion towards their historic average returns.” I suggested two emerging market indices, with the caveat that “ugly duckling investments” like these often need years to blossom.

I was way too pessimistic, as these two funds have rallied about 12% since then.

Rather than cash out, I am going to suggest you stay with this investment for longer. Not just a little longer, but a whole lot longer.

Why? There are at least four compelling reasons:

First, and most obvious, emerging markets remain the cheapest broad equity markets in the world. The U.S. is fully valued; the developed world ex-U.S. is also pricey. Europe, despite all of its woes, isn’t much cheaper. Emerging markets, on the other hand, remain attractively priced. If you want to see how well this thesis is playing out, look at a chart of the ratio between the S&P 500 index (SPY) versus the MSCI Emerging Markets Index (EEM). When the line is rising, U.S. markets are outperforming emerging markets; when it is falling, emerging markets are outperforming U.S.

Second, as we noted last time, the U.S. has been outperforming emerging markets for about seven years. These cycles can run anywhere from five to 10 years, and given the valuation differential we could be in the very early innings of a long bull market for emerging economies.

Third, emerging markets are affected by the strength of the U.S. dollar and pricing of commodities. Today, the dollar is at multi-year highs while commodities are the cheapest they’ve been in many years. I have no idea how long this condition will persist, but eventually mean reversion will rear its head. The dollar will weaken, commodities will see price increases, and both of those benefit the emerging mareket economies and their stock markets.

The same two inexpensive investments — DFA Emerging Markets Core Equity (DFCEX, purchased through advisers) and the Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX) — remain my choices. [DFCEX rose 7.4% for the three months ended Sept. 30; VEMAX gained 6.5%.]

Fourth and last is a trading rule I developed a long time ago: So long as the underlying reasons for owning something are still in place, you hold on to that position. Never make excuses for not selling once your thesis is disproved. Conversely, until your underlying reasons for ownership are no longer valid, don’t sell merely because of a little price appreciation. Cutting your losers and letting your winners run is much better investing strategy.

Way to play it with ETFs: The Vanguard FTSE Emerging Markets ETF (VWO) holds 36,000 emerging-market stocks, with its heaviest weightings in China, Taiwan and India. VWO is the ETF version of Vanguard Emerging Markets Stock Index Fund (VEMAX) and costs the same. Either will do.

Sarah Ketterer, CEO and fund manager, Causeway Capital Management

Invest in corporate ‘self-help’

In this seemingly endless environment of economic stagnation, what will drive revenue and profit growth? Central banks may be running out of monetary solutions to stimulate credit and demand. While we wait for the political landscape to become less muddled, investors can get access to companies engaged in operational restructuring or “self-help.”

These companies, boasting strong balance sheets and modest levels of debt, typically have managements committed to a continuous and inexorable process of cost cutting and increased efficiency. In mobile telephony, especially in Japan, China and South Korea, several of the largest listed companies have found increasingly ingenious ways to extract above-industry-average returns from the mature telecommunications market. [China Mobile Ltd. and SK Telecom Co. Ltd. were in the top 15 holdings of the Causeway International Value Fund (CIVIX), as of June 30.] Smart self-help moves by senior managements of these companies have led to a reduction in capital expenditures and operating costs.

These companies are typically creating innovative and value-added services, introducing popular data plans and benefiting from supportive local regulations. Similarly, in the more mature segment of technology, “legacy tech” companies also have managements committed to reinvigorating growth. Even though these companies have valuable proprietary technology, sell-side analysts put some of them in the dinosaur category. But the analysts often take a short-term view. Market pessimism can give investors a chance to buy world-class technology franchises in transition.For example, large enterprise software companies must make a successful transition from an on-premises licensing business model to a cloud-computing subscription-based model. Semiconductor companies currently expert in mobile wireless technology are making measurable progress to deliver next-generation technology. Look for efficient operations, focused and shareholder-friendly managements, as well as inherent advantages in research and development expertise and resulting defendable intellectual property. [SAP and Samsung Electronics are CIVIX holdings.]

Economic malaise aside, these great companies, albeit often labeled mature and in transition, still trade at valuations that imply the potential for above-market returns.

Way to play it with ETFs: The First Trust NASDAQ Technology Dividend Index Fund (TDIV) holds tech companies that pay the highest dividend, which means it has the largest percentage of “legacy tech” names such as Intel Corp., Microsoft Corp., Cisco Systems Inc. and Oracle Corp. This “I love the 90s” portfolio has the lowest volatility, lowest average price-to-earnings ratio and highest dividend yield of the technology ETFs.

Mark Mobius, Executive chairman, Templeton Emerging Markets Group

Look to China’s internet

We believe emerging markets should be included in a well-diversified portfolio, and one place to invest $10,000 of that portfolio is in China. Since the beginning of 2016, we’ve observed the Chinese stock market acting with high volatility. That’s due in large part to changes in government policies as regards supporting or heating up [the market] but then cooling the market down. This, of course, has created a lot of speculation and confusion. However, what we are certain of is that the fundamentals in China still remain positive.

Despite a decelerated growth rate, China remains one of the fastest-growing economies in the world. We are not too concerned by the current slowing growth nor its long-term investment prospects. Looking past the Chinese stock markets, we are now on the ground and looking to capitalize on the long-term Chinese growth story and the ongoing transformation of its economy from a production/export-led economy to a services-led economy.

Emerging markets globally in many cases have been severely oversold and are cheap in relation to their long-term earnings capacity. This is true in China as well as other countries. We are probably nearing the end of the downtrend in prices, so our focus must be company-specific rather than making a commitment to the market in general. We are most bullish for consumer-related stocks and particularly technology stocks. More specifically, internet stocks are showing healthy growth characteristics with good margins. Selected commodity shares are still cheap and are among our favorites, but I emphasize “selected,” since not all the sector stocks are of interest. Oil prices have shown a bottoming out, and with the expectation that those oil prices will not have a dramatic upside, diversified oil companies should do well because of their downstream operations. [Downstream refers to refining and other activity that leads to selling to consumers at gas stations, rather than activities like production and exploration.]

Ways to play it with ETFs: The iShares MSCI China ETF (MCHI) is a highly liquid, fast-growing China ETF that tracks Hong Kong- and U.S.-listed Chinese companies. It has a 34% weighting in tech stocks such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. and a 10% allocation to consumer stocks. Investors could pair MCHI with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) . It holds locally traded A-shares, albeit with only 8% in the tech sector but with 16% in consumer stocks.

Rob Arnott, Co-founder, Research Affiliates

Add out-of-favor Europe

My recommendation in June was to concentrate on emerging-market value stocks. Over the three months ending in August, the Fundamental Index in emerging markets rallied by 17%, conventional emerging markets stocks were up 12% and U.S. stocks were up about 4%. [Fundamental indexation is a way to weight the stocks that make up an index by fundamental factors of their business, such as sales, book value and cash flow, rather than their market capitalization. This leads to a tilt toward value, rather than, say, the growth tilt of the market cap-weighted S&P 500 Index.]

Will the rally in emerging market stocks continue? We have no idea. Valuation levels suggest that the long-term prospects remain excellent. Even after the run-up, emerging market stocks are trading at about 13 times their long-term (10-year) earnings, compared to European stocks at 14 times and U.S. stocks at a nosebleed level of 27 times. The Fundamental Index in emerging markets is even cheaper, at around 8.5 times earnings.

Looking through the lens of valuation, it now makes sense to consider adding European stocks to the mix. Note that both emerging markets and Europe are severely out of favor. That’s normal for bargains. We win, on average over time, by buying whatever others shun.

The same value principle applies to other asset classes. Some out-of-mainstream bond markets have pushed into bargain territory after a three-year bear market. The best time to pivot into an asset class is when it is most shunned. With near-zero yields on mainstream bonds, we can seek higher yield in other bond markets. Floating-rate bank loans are attractive for their higher yield and their ability to weather any backup in bond yields. Emerging-market local currency bonds are also interesting based on strong fundamentals and the tailwind from cheap currencies. And emerging market local currencies offer ample opportunity, having tumbled from a 25% premium five years ago to a 19% discount today!

Today I would invest $10,000 by placing $2,500 in each of these four asset classes: Emerging market deep value stocks, European stocks (preferably with a value bias), floating-rate bank loans and emerging market local currency bonds. This is not a “permanent portfolio,” but it’s a nicely diversified (if unconventional) portfolio of reasonably cheap markets.

Ways to play it with ETFs: An ETF to consider is PowerShares Fundamental Emerging Markets (PXH) , which has fees of 0.49%. (It uses Arnott’s fundamental indexing approach.) For Europe there’s the Vanguard FTSE Europe ETF (VGK) , for floating-rate bank loans there’s the PowerShares Senior Loan Portfolio (BKLN), and for EM local currency bonds investors can use the VanEck Vectors J.P Morgan EM Local Currency Bond ETF (EMLC).

Francis Kinniry, Principal, Vanguard Investment Strategy Group

Add to your losers

If the original investment plan you established still meets your long-term goals and objectives, new proceeds of $10,000 can be allocated to return your portfolio to its original asset allocation. As such, the new cash flow would be seen as a “non-taxable rebalancing” opportunity. In other words, you can better align your portfolio back to the investment plan without selling better-performing assets — and thus realizing a taxable gain — to buy more of what hasn’t done well in the portfolio.

Why would anyone want to do this? Because a portfolio’s asset allocation is the major determinant of its risk-and-return characteristics. Yet, over time, asset classes produce different returns, so the portfolio’s asset allocation changes. Therefore, to recapture the portfolio’s original risk-and-return characteristics, the portfolio should be rebalanced. Portfolio rebalancing is extremely important, because it helps investors to maintain their target asset allocation. By periodically rebalancing, investors can diminish the tendency for “portfolio drift” and thus potentially reduce their exposure to risk relative to their target asset allocation.

Ways to play it with ETFs: While there isn’t one ETF for Mr. Kinniry’s suggestion, it’s a good excuse to point out that investors can now get a fully diversified portfolio with ETFs for a blended fee of around 0.10% using funds offered by Vanguard Group, Charles Schwab Corp. and BlackRock Inc., which just lowered fees on its “core” series aimed at individual, buy-and-hold investors.